5 dumb reasons you can't get mortgage help

The fax machine is first among problems bedeviling the government's modification program.

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By Tami Luhby, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- What's keeping troubled homeowners from getting mortgage help? Start with the fax machine.

Most loan servicers taking part in the Obama administration's mortgage modification initiative require that borrowers fax in their applications and supporting documents. And because faxes can be problematic, aid can be delayed or denied.

The fax isn't the only source of complications. Borrowers and housing counselors complain of endless waits on hold, lost paperwork and incorrect information from customer service representatives.

Many of the pitfalls stem from how quickly the programs were set up, experts said. Mortgage servicers often have 90 days to set up new programs. In this case, they were only given a few weeks.

"The program has been done somewhat on the fly because it's a crisis situation," said Paul Leonard, vice president for government relations for the Housing Policy Council, which represents mortgage lenders, servicers and insurers.

Only 9% of eligible delinquent borrowers have been put into trial modifications, according to a Treasury Department report released last week. The government is putting increased pressure on servicers to improve their performance as homeowners' complaints mount.

CNNMoney.com looks at five reasons why the loan modification process is so slow.

Reason #1: The fax machine

Having applicants fax their information to servicers has produced a slew of problems. Pages get lost or are cut off at the top or bottom. Servicers provide non-working or incorrect numbers. Applications are routed improperly, leaving files incomplete.

"It seems your stuff goes into a black hole," said Michael van Zalingen, director of homeownership services for Neighborhood Housing Services of Chicago. "It's archaic. Given all the problems we've had with lost faxes, it seems unreasonable to use a fax system."

Servicers acknowledge there is a better way. They'd like to see the government develop a Web portal where borrowers can fill out paperwork and submit documents, Leonard said.

The portal could also enable borrowers and housing counselors to confirm that their applications were received and are complete.

"Homeowners could get a more real-time update on their status and see what else is needed," Leonard said.

Reason #2: Multiple forms

All sides acknowledge that the multitude of forms and documentation requirements is gumming up the works. Servicers have to provide different paperwork depending on whether the borrowers' loan is owned by Freddie Mac (FRE, Fortune 500) or Fannie Mae (FNM, Fortune 500). On top of that, many institutions have also developed their own applications.

The lack of a unified application process makes it tough for distressed borrowers -- and even housing counselors -- to submit everything that's required.

For instance, some servicers want to see the most recent month's bank statements and pay stubs, while others want to see two months' worth. The self-employed may have to send in six months of business records or a year's worth, depending on their servicer.

"It's not understood what needs to be sent in," said Kathy Conley, housing and finance counselor with GreenPath in Farmington Hills, Mich.

Financial institutions would also like to have the process simplified, Leonard said. They are petitioning the administration to create a standard set of documents and requirements for the program.

Reason #3: Outdated documentation

Since it can take weeks for servicers to process applications, documents such as bank statements and pay stubs can become outdated quickly. Servicers then tell applicants to send in more recent proof of income, often sending them back to square one.

"By the time they get back to you, they say it's stale," van Zalingen said.

Conley always tells her clients to keep their pay stubs handy because they'll likely need to update their files.

If the government reduces the amount of documentation that's needed, servicers can process the applications more quickly, said David Sisko, who heads the default management practice at Deloitte & Touche.

"Nothing servicers have is designed to handle this type of volume," he said.

Reason #4: Poorly trained personnel

Servicers are hiring and training staff by the thousands to handle the flood of applications they are receiving. But borrowers and housing counselors complain bitterly that many customer service representatives are not aware of the modification program's details.

"They are not getting the training to be able to give homeowners the right answers," van Zalingen said. "Their ignorance of the program is almost outrageous."

Take Ryan in Minnesota, who wrote to CNNMoney.com. He has been trying to modify his loan for the past several months.

"Initially every time I called in to find out what the lender could do for us, I got a different answer every time except for them constantly telling me they won't do anything if we are not three months behind in payments, which is an absolutely ridiculous suggestion," he said.

Servicers, who are feeling the heat from the Obama administration, have said they are working on improving their customer service operations. They expect to ramp up the review process by the fall.

Reason #5: Unclear modification offers

Some delinquent borrowers are receiving trial modification offers without ever sending in an application. That's because servicers are culling through their portfolios and reaching out to those who likely qualify for help.

The packet, however, is confusing, van Zalingen said. The offer letter doesn't clearly state that it is part of the administration's loan modification program, and the new monthly payment doesn't appear for several pages.

Many homeowners don't know what to make of the offer and simply throw it away, he said.

Leonard said servicers are looking to increase their response rate.

"Companies are experimenting with the best way to reach people and getting them to respond," he said.  To top of page

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